To hedge a foreign currency receivable,
A)buy call options on the foreign currency with a strike in the domestic currency.
B)buy put options on the foreign currency with a strike in the domestic currency.
C)sell call options on the foreign currency with a strike in the domestic currency.
D)sell put options on the foreign currency with a strike in the domestic currency.

Question

Quizplus · Accepted Answer

Buying put options on the foreign currency with a strike in the domestic currency provides a hedge against a potential depreciation of the foreign currency. If the foreign currency falls below the strike price, the option can be exercised, allowing the holder to sell the foreign currency at the strike price and limit their losses.

To Hedge a Foreign Currency Receivable